Electric car battery manufacturer A123 Systems, which attracted major investors, landed a $249 million federal grant and at its peak had a market value of $2.3 billion, filed for Chapter 11 bankruptcy protection and announced it would sell off its automotive business to Johnson Controls in a deal valued at $125 million.

A123 Systems and its two affiliates filed for bankruptcy with the U.S. Bankruptcy Court in Wilmington, Del., a day after missing a deadline make a $2.8 million interest payment to bondholders.

Under the terms of the agreement, Johnson Controls will acquire A123's automotive business assets, including all of its automotive technology, products and customer contracts; its facilities in Livonia and Romulus, Mich.; its cathode power manufacturing facilities in China; and the company's equity interest in Shanghai Advanced Traction Battery Systems Co., a joint venture Shanghai Automotive.

Johnson Controls intends to license back to A123 certain technology for its grid, commercial and government businesses. Johnson Controls also has agreed to provide $72.5 million in financing to support the company's continued operations during the sales process.

The battery maker, which was founded in 2001, also continues to pursue strategic alternatives for its businesses. A123 eluded in vague terms that it has received "several indications of interest for these businesses."

The deal comes just two months after A123 said it had reached a non-binding agreement with China's Wanxiang Group for a $450 million investment in return for an 80 percent stake in the company. That deal appears to have collapsed. A123 didn't provide any information about the status of its agreement with Wanxiang.

A123, which supplied batteries to Fisker Automotive and GM's Spark electric car, has struggled over the past year to keep manufacturing costs in line and remain competitive despite support from investors and the federal government. The company dealt with multiple recall programs, weak sales and an investor class action lawsuit.

In June, A123 unveiled an improved version of its lithium-ion battery cell technology it said could lead to lighter, long-lasting battery packs that wouldn't require heating or cooling systems and ultimately would lower the cost of electric vehicles.

The technology, known as the Nanophosphate EXT, was the company's best (and really one) chance to revive its existing business and open up potential new applications for lithium-ion cells in the telecommunications and transportation industries.

Kirsten Korosec has written for Technology Review, Marketing News, The Hill, BNET and Bloomberg News. She holds a degree from Northwestern University's Medill School of Journalism. She is based in Tucson, Arizona.
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